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The city is delivering some good financial news for a change.

City staff are predicting that Budget Chief Mike Del Grande will have an extra $139.3-million to work with as he drafts a plans for eliminating the city's budget gap, according to a new report.

The fate of that windfall will inevitably form the basis of pitched debate among councillors. While Mr. Del Grande says the "one-time money" should be tucked away in a rainy-day fund to tackle future financial problems, his opponents insist it should be used to fill this year's budget gap, a measure that would reduce the city's need for large-scale service cuts.

"It shouldn't be used to balance the budget," said Mr. Del Grande of the surplus. "You should use one-time surplus money for one-time expenses. The problem for the city for a long time has been the use of one-time monies to balance the budget. We can't get back into that trap."

But his opponents on council point out that Mr. Del Grande did exactly that last year, putting $360-million in surplus funds towards a 2011 budget hole. They also contest that this is the fifth consecutive year that Toronto has shown a significant operating surplus, suggesting that such windfalls are not one-time boons but evidence of consistent over-performance. Councillor Gord Perks, a former member of the Budget Committee under David Miller, argues that the surpluses should be used to buoy the operating budget until long-term tax increases and continued provincial uploading of city services can make up for the city's ongoing structural deficit.

"The question now is do we use this few good years' worth of money to help us reach a long-term balanced budget," said Councillor Gord Perks, "or do we behave like Mike Del Grande and run around like chickens with our heads cut off and tell everyone we have to cut everything."

The $139-million surplus comes mainly from an better-than-expected earnings from investments, supplementary taxes and the land-transfer tax as well a city operations forecast pegged at $16.9-million thanks to the City Manager's hiring slowdown, new expense controls, low winter maintenance costs, a boost in provincial uploading and low social assistance costs.

The land-transfer tax alone is expected to yield $300-million for the city in 2011, $79.5-million more than expected.

Mayor Rob Ford pledged to abolish the land-transfer tax during his mayoral campaign. He has recently said he will do it by the end of his term.

Mr. Del Grande refused to comment on the feasibility of the mayor's plan. "I can't speculate on that," he said. "The mayor wants to keep that promise. My responsibility is to balance the books. Once we do that, we'll see. The land-transfer tax is for me another issue for another day."

Mr. Perks was far more decisive.

"Yesterday, I would have said Mayor Ford was crazy to want to cancel the land-transfer tax. Today, I'd say he's absolutely crazy to want to cancel the tax," he said.

The report proves that Toronto's real estate market has largely shielded the city from the financial hardships buffeting much of the U.S. and parts of Europe. Mr. Del Grande warns that the city can't afford to lean on a hot housing market for good. "We are very fortunate," he said. "We have something like 122 construction cranes working in the city. We're doing gung-ho. If all of a sudden investors get cold feet and welfare cases jump, where does the money come from? We must be prepared."

The report, which will go before Budget Committee next week, also noted that City Manager Joe Pennachetti's new hiring controls have resulted in 1,967, or 3.7 per cent, fewer job positions than council approved for 2011. Mayor Ford has warned that up to 7,000 job cuts could be one way in an effort to rein in expenses.

"Fifty per cent of our costs are labour," said Mr. Del Grande. "It doesn't take a genius to figure out that we have to get that part in order."